You offered her a place to live and to pay all her expenses without laying down any ground rules......yet you had certain expectations from her! You didn't think it through, but instead took some advice and went overboard with it before taking time to think it through and get a clear understanding of what was suggested. Was this your idea of keeping the road paved smooth? I agree, you do have a problem with balance. Now, you realize your WAW apparently has a different POV about how she will live her life.....and let you foot the bills.
As for OM and your kids, all you can do is check with a lawyer. Otherwise, you can snort and stomp around like an angry bull, but it won't pave that road any better. Face it, you scr@wed up when you offered her the goose who lays gold eggs. And you are the goose! . I know, you thought it was helping her in her hard times. I just don't agree with the way you chose to help.
For now, cool down and try to get your head on straight before making another bad decision. Okay?
It is not about what you feel should work in your M. It is about doing the work that gets the right results. Do what works!